Post on 05-Apr-2020
CMP (Rs) 712.00
Target Price (Rs) 797.00
ISIN: INE117A01022
Nov 30th
, 2012
ABB LIMITED Result Update: Q3 CY12
HOLDHOLDHOLDHOLD
Stock Data
Sector Capital Goods
BSE Code 500002
Face Value 2.00
52wk. High / Low (Rs.) 915.00/541.10
Volume (2wk. Avg ) 7442.00
Market Cap ( Rs in mn ) 150879.92
Annual Estimated Results (A*: Actual / E*: Estimated)
Years CY11A CY12E CY13E
Net Sales 74489.71 84918.27 93410.10
EBITDA 3779.63 4367.24 4797.90
Net Profit 1845.36 2124.31 2352.14
EPS 8.71 10.02 11.10
P/E 81.76 71.03 64.15
Shareholding Pattern (%)
1 Year Comparative Graph
BSE SENSEX ABB LTD
Source: Company Data, Firstcall Research
SYNOPSIS
ABB is the leading power and automation
engineering companies and its portfolio
ranges from light switches to robots, and
from huge electrical transformers to control
systems that manage entire power networks
& factories.
ABB has won an order worth $39 million
from PKP Energetyka S.A., the main power
supplier to railway operators in Poland.
ABB has won orders worth over $100
million, to supply converter transformers
and components for the Hami-Zhengzhou
ultrahigh-voltage direct current (UHVDC)
transmission link.
During the quarter, the robust growth of Net
Sales is increased by 3.73% to Rs. 18086.10
million.
ABB Finance (Australia) Pty Ltd has priced
an AUD 400 million 5-year bond transaction.
CLEVER, a leading electric mobility operator
in Denmark has chosen ABB as a supplier of
50 Terra 51 DC fast chargers at multiple
locations throughout Denmark.
ABB has received orders worth over
Rs.1679 crore, during the quarter.
Net Sales and PAT of the company are
expected to grow at a CAGR of 14% and 55%
over 2010 to 2013E respectively.
Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
ABB Ltd 712.00 150879.92 8.71 81.76 5.95 150.00
Siemens Ltd 670.60 236073.40 10.09 66.46 6.18 300.00
BHEL Ltd 233.35 571147.50 28.63 8.15 2.25 320.00
Crompton Greaves Ltd 114.40 73386.60 7.72 14.82 2.72 70.00
Investment Highlights
Results updates- Q3 CY12,
ABB is the leading power & automation engineering
companies and its portfolio ranges from light
switches to robots, and from huge electrical
transformers to control systems that manage entire
power networks & factories in the world and the
largest in India, reported its financial results for the
quarter ended 30th Sep, 2012. The third quarter
witness a healthy increase in sales but the moderate
decline in profit was a result of delayed projects and
the accounting policy to take all anticipated increase
in project costs due to slow progress in some large
infrastructure and industrial projects.
Months Sep-12 Sep-11 % Change
Net Sales 18086.10 17435.26 3.73
PAT 213.70 221.57 (3.55)
EPS 1.01 1.05 (3.55)
EBITDA 673.40 704.18 (4.37)
The company’s net profit decreased to Rs.213.70 million against Rs.221.57 million in the corresponding quarter
ending of previous year, and decrease of 3.55%. Revenue for the quarter rose 3.73% to Rs.18086.10 million from
Rs.17435.26 million, when compared with the prior year period. A reported earnings per share of the company is
at Rs.1.01 a share during the quarter, decrease of 3.55% over previous year period. Profit before interest,
depreciation and tax is Rs.673.40 millions as against Rs.704.18 millions in the corresponding period of the
previous year.
Expenditure :
During the quarter total expenditure cost rose by 4
per cent mainly on account of increase in
Subcontracting Expenses along with consideration
of Other Expenditure. Total expenditure in Q3 CY12
was at Rs. 17662.60 million as against Rs. 17031.40
million in Q3 CY11. Cost of materials consumed &
Purchases of project items is at Rs. 11096.60
millions against Rs. 10745.20 millions in the
corresponding period of the previous year. Other
Expenditure was at Rs. 3278.90 million and
Subcontracting Expenses are Rs. 1179.30 million in
Q3 CY12 are the primarily attributable to growth of
expenditure.
Segment Revenue
Orders Won By ABB Ltd for Q3 CY12
ABB Ltd received orders worth Rs.1679 crore during the quarter ended September 30, 2012, compared to an
order intake of Rs. 2493 crore for the same period last year. Delays in finalization of large orders resulted in an
overall decrease in orders during the quarter. However there was significant increase in orders from
manufacturing, industrial and urban infrastructure sectors.
Latest Updates
• ABB Ltd has won an order worth almost $39 million from PKP Energetyka S.A., the main power supplier to
railway operators in Poland, to deliver rectifier units for DC traction substations. ABB will deliver more than
hundred rectifier units through 2014. Several hundred ABB rectifiers are already in service on the Polish
State Railways’ (PKP) power-feed system.
• ABB has won orders worth over $100 million, to supply converter transformers and components for the
Hami-Zhengzhou ultrahigh-voltage direct current (UHVDC) transmission link.
• CLEVER, a leading electric mobility operator (EMO) in Denmark has chosen ABB as a supplier of 50 Terra 51
DC fast chargers at multiple locations throughout Denmark. ABB’s Terra 51 is specially designed for freeway
driving and is capable of charging an electric vehicle in 30 minutes or less.
• ABB has announced that its subsidiary ABB Finance (Australia) Pty Limited has priced an AUD 400 million 5-
year bond transaction. This transaction is the first domestic Australian bond issued by ABB. The bonds carry
a coupon of 4.25% and will be guaranteed by ABB Ltd, the ultimate holding company of the ABB Group. The
bond is issued off ABB Finance (Australia) Pty Limited’s newly established AUD 1 billion debt issuance
programme.
Company Profile
ABB Group Company was incorporated in India in 1949; it is leader in power automation technologies. These
technologies enable industrial customers to improve performance along with lower environment impact. The
ABB Group has 14 manufacturing units in India. It operates in 100 countries and has employed 1,20,000 people.
In India it has presence across 30 marketing offices, 8 service centers, 3 logistics warehouses and network of 750
channel partners.
The history of ABB goes back to the late nineteenth century, and is a long and illustrious record of innovation and
technological leadership in many industries. Having helped countries all over the world to build, develop and
maintain infrastructures, ABB has in recent years gone over from large-scale solutions to alternative energy and
the advanced products and technologies in power and automation that constitute its Industrial IT offering.
ABB is a global leader in power and automation technologies that enable utility and industry customers to
improve performance while lowering environmental impact. For more than 100 years, ABB and its predecessor
companies have set the pace for innovation in technologies to harvest energy, improve productivity, safeguard
the environment, increase profits, and more. The company modern-day power and automation technologies are
derived from the efforts of dozens of leading companies and thousands of talented individuals worldwide.
Business Area
• Power Products
Power Products are the key components to transmit and distribute electricity. The division incorporates
ABB's manufacturing network for transformers, switchgear, circuit breakers, and cables and associated
equipment. It also offers all the services needed to ensure products' performance and extend their lifespan.
The division is subdivided into three business units.
• Power Systems
Power Systems offers turnkey systems and services for power transmission and distribution grids, and for
power plants. Substations and substation automation systems are key areas. Additional highlights include
flexible alternating current transmission systems (FACTS), high-voltage direct current (HVDC) systems and
network management systems. In power generation, Power Systems offers the instrumentation, control and
electrification of power plants. The division is subdivided into four business units.
• Discrete Automation and Motion
This division provides products, solutions and related services that increase industrial productivity and
energy efficiency. Its motors, generators, drives, programmable logic controllers (PLCs), power electronics
and robotics provide power, motion and control for a wide range of automation applications. The leading
position in wind generators and a growing offering in solar complement the industrial focus, leveraging joint
technology, channels and operations platforms.
• Low Voltage Products
The Low Voltage Products division manufactures low-voltage circuit breakers, switches, and control
products, wiring accessories, enclosures and cable systems to protect people, installations and electronic
equipment from electrical overload. The division further makes KNX systems that integrate and automate a
building's electrical installations, ventilation systems, and security and data communication networks.
• Process Automation
The main focus of this ABB business is to provide customers with products and solutions for instrumentation,
automation and optimization of industrial processes. The industries served include oil and gas, power,
chemicals and pharmaceuticals, pulp and paper, metals and minerals, marine and turbo charging. Key
customer benefits include improved asset productivity and energy savings.
• Robotics:
ABB is a leading supplier of industrial robots - also providing robot software, peripheral equipment, modular
manufacturing cells and service for tasks such as welding, handling, assembly, painting and finishing, picking,
packing, palletizing and machine tending. Key markets include automotive, plastics, metal fabrication,
foundry, electronics, machine tools, pharmaceutical and food and beverage industries. A strong solutions
focus helps manufacturers improve productivity, product quality and worker safety. ABB has installed more
than 160,000 robots worldwide.
Plants Locations
The Company’s plants are located at Bengaluru, Faridabad, Haridwar, Mumbai, Nashik and Vadodara.
Financial Highlight
Balance sheet as at December 31st, 2011
(A*- Actuals, E* -Estimations & Rs. In Millions)
Particulars March (Rs.in.mn) CY11A CY12E CY13E
1.Shareholder’s Funds
a) Capital 423.82 423.82 423.82
b) Reserves & Surplus 24921.35 27045.66 29397.80
Total Net worth 25345.17 27469.48 29821.62
Total Liabilities 25345.17 27469.48 29821.62
1.Fixed Assets
a) Gross block 14619.41 16666.13 18666.06
b) Depreciation 2935.37 3199.55 3391.53
c) Net Block 11684.04 13466.57 15274.54
d) Capital Work in Progress 839.15 965.02 1061.52
Total Fixed Assets 12523.19 14431.60 16336.06
2. Investments 506.98 557.68 602.29
3. Deferred Tax Assets (net) 223.97 257.57 283.32
Current Assets, Loans & Advances (A)
a) Inventories 9255.49 10458.70 11399.99
b) Sundry Debtor 30825.05 31749.80 32384.80
c) Cash & Bank Balance 2643.68 2855.17 2997.93
d) Other Current Assets 3209.55 3370.03 3471.13
e) Loans & Advances 3666.60 3739.93 3777.33
Total Current Assets 49600.37 52173.64 54031.18
Less: Current Liabilities & Provisions (B)
a) Liabilities 35178.83 37294.22 38508.77
b) Provisions 2330.51 2656.78 2922.46
4. Net Current Assets (A-B) 12091.03 12222.64 12599.94
Total Assets( 1+2+3+4) 25345.17 27469.48 29821.62
Annual Profit & Loss Statement for the period of 2010 to 2013E
Value(Rs.in.mn) CY10 CY11 CY12E CY13E
Description 12m 12m 12m 12m
Net Sales 63593.29 74489.71 84918.27 93410.10
Other Income 133.07 161.77 121.33 127.39
Total Income 63726.36 74651.48 85039.60 93537.49
Expenditure -62033.51 -70871.85 -80672.36 -88739.59
Operating Profit 1692.85 3779.63 4367.24 4797.90
Interest -173.93 -306.80 -398.84 -478.61
Gross profit 1518.92 3472.83 3968.40 4319.29
Depreciation -516.61 -795.43 -835.20 -860.26
Profit Before Tax 1002.31 2677.40 3133.20 3459.03
Tax -370.00 -832.04 -1008.89 -1106.89
Net Profit 632.31 1845.36 2124.31 2352.14
Equity capital 423.82 423.82 423.82 423.82
Reserves 23813.21 24921.35 27045.66 29397.80
Face value 2.00 2.00 2.00 2.00
EPS 2.98 8.71 10.02 11.10
Quarterly Profit & Loss Statement for the period of 31st March, 2012 to 31st Dec, 12E
Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E
Description 3m 3m 3m 3m
Net sales 17903.10 18837.90 18086.10 22426.76
Other income 18.60 14.20 9.50 7.60
Total Income 17921.70 18852.10 18095.60 22434.36
Expenditure -16927.90 -17778.00 -17422.20 -21305.43
Operating profit 993.80 1074.10 673.40 1128.94
Interest -54.00 -76.50 -117.20 -159.39
Gross profit 939.80 997.60 556.20 969.55
Depreciation -223.40 -231.30 -240.30 -168.21
Profit Before Tax 716.40 766.30 315.90 801.34
Tax -240.00 -250.00 -102.20 -260.43
Net Profit 476.40 516.30 213.70 540.90
Equity capital 423.80 423.80 423.80 423.80
Face value 2.00 2.00 2.00 2.00
EPS 2.25 2.44 1.01 2.55
Ratio Analysis
Particulars CY10 CY11 CY12E CY13E
EPS (Rs.) 2.98 8.71 10.02 11.10
EBITDA Margin (%) 2.66% 5.07% 5.14% 5.14%
PBT Margin (%) 1.58% 3.59% 3.69% 3.70%
PAT Margin (%) 0.99% 2.48% 2.50% 2.52%
P/E Ratio (x) 238.62 81.76 71.03 64.15
ROE (%) 2.61% 7.28% 7.73% 7.89%
ROCE (%) 9.12% 18.05% 18.94% 18.97%
EV/EBITDA (x) 85.66 39.22 33.89 30.82
Book Value (Rs.) 114.37 119.60 129.63 140.73
P/BV 6.23 5.95 5.49 5.06
Charts
Outlook and Conclusion
� At the current market price of Rs.712.00, the stock P/E ratio is at 71.03 x CY12E and 64.15 x CY13E
respectively.
� Earning per share (EPS) of the company for the earnings for CY12E and CY13E is seen at Rs.10.02 and
Rs.11.10 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 55% over 2010 to 2013E
respectively.
� On the basis of EV/EBITDA, the stock trades at 33.89 x for CY12E and 30.82 x for CY13E.
� Price to Book Value of the stock is expected to be at 5.49 x and 5.06 x respectively for CY12E and CY13E.
We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth
story in the coming quarters also. We recommend ‘HOLD’ in this particular scrip with a target price of Rs.797.00
for Medium to Long term investment.
Industry Overview
The capital goods industry is the backbone of India’s manufacturing sector. India produces wide range capital
goods, including machinery and machine tools. Some of the prominent capital goods produced in India include
heavy electrical machinery, textile machinery, machine tools, earthmoving and construction equipment including
mining equipment, road construction equipment, material handling equipment, oil & gas exploration equipment,
sugar machinery, food processing and packaging machinery, railway equipment, metal surgical equipment,
cement machinery, rubber machinery, process plants machinery & equipments, paper & pulp machinery,
printing machinery, dairy machinery, industrial refrigeration, industrial furnaces etc. Capacity creation in the
Indian capital goods industry has been growing, since liberalization, and in tune with the growth in industry.
Capital Goods refer to products that are used in the production of other products but are not incorporated into
the new product. These include machine tools, industrial machinery, process plant equipment, construction &
mining equipment, electrical equipment, textile machinery, printing & packaging machinery etc. The Capital
Goods industry is the “mother” of all manufacturing industry and is of strategic importance to the National
security and economic independence.
It is in the interest of the User Sectors that the Capital Goods industry should be strengthened since it is a known
fact that the presence of a strong domestic industry increases competition and helps in reducing the capital cost
of the project and most important, the maintenance of plant and machinery can be done economically. The
imported plants come at the lowest cost but the importers make up for that in their high priced maintenance
contracts & spares. Industrial growth has risen to 8.8 per cent in June. The 8.8 per cent year-on-year rise in the
Index of Industrial Production (IIP) -against 7.5 per cent in June 2010 -was led by manufacturing and, within
that, the capital goods sub-segment.
Manufacturing rose 10 per cent (7.9 per cent in June 2010), with the corresponding year-on-year increases for
the other two major IIP constituents - mining and electricity - amounting to 0.6 per cent (6.9 per cent) and 7.9
per cent (3.5 per cent), respectively.
But the most impressive growth of 37.7 per cent — against 3.7 per cent in June 2010 was registered by capital
goods, which is considered a proxy for investment activity in the economy. This is particularly borne out by
production of ‘electrical machinery & apparatus' and ‘office, accounting & computing machinery', which have
gone up by 88.9 per cent and 19.1 per cent, respectively. On the other hand, consumer spending does not appear
all that robust. Both consumer durables (one per cent in June 2011 against 21.2 per cent in June 2010) and non-
durables (2.1 per cent against 7.5 per cent) were down. Similarly, output of basic goods and goods was up by 7.5
per cent and 1.9 per cent, compared with the June 2010 levels of 3.7 per cent and 8.5 per cent.
It is expected that the industry will foresee an upswing either in the last quarter of the current financial year or
first quarter of next financial year as order inflows have picked up. On the whole, the first quarter has seen
industry grow by 6.8 per cent (against 9.6 per cent during April-June 2010), with these correspondingly working
out to 7.5 per cent (10.3 per cent) for manufacturing, one per cent (eight per cent) for mining, and 8.2 per cent
(5.4 per cent) for electricity.
Planning Commission constituted a Working Group on Capital Goods and Engineering Sector for the 12th
Five Year Plan under the Chairmanship of Secretary, Department of Heavy Industry. Seven sector-wise,
subgroups, namely, machine tools & plastic processing machinery, earth moving and mining equipment, heavy
electrical and power plant equipment, metallurgical machinery, textile machinery, process plant equipment,
engineering goods and dies, molds & tool industry were constituted. The methodology consisted of inviting
information/suggestions from all the stake holders, such as industry associations, centres of excellence and
major PSUs etc. The inputs were deliberated in-depth at various for a, before finalizing the report.
The industry growth during 11th Plan stood is at 14%. The turnover during 2010-11 was Rs 2,67,944 crore.
There is a need for rapid growth of the sector, for which it is proposed to initiate some national programmes.
These in turn will create additional demand. It is also proposed to take steps to substitute imports by domestic
production. This is expected to take the sector to Rs 6,81,000 crores in 2016-17 at a CAGR of 16.8%. The current
employment of 1.4 million is proposed to be boosted through a series of recommendations to reach 2.8 million
by the end of the 12th Five Year Plan. In order to increase technology content in the domestic production, policy
and programme initiatives are proposed for R&D, education and training, technology development, technology
purchase, technology development abroad on contract, technology acquisition, IPR purchase and ownership,
joint technology development and funding for technology up gradation. Some sub-sectors of capital goods in
Indian manufacturing sector are not upto the global standards. It is proposed to provide exposure, facilitation,
technology development support and support for acquisition of technology firms abroad. Some of the PSUs are
proposed to be elevated as national/global champions. Technology and design development support is proposed
to be provided to the capital goods sectors for producing energy efficient machines.
During the past few quarters, the capital goods sector has been bearing the brunt of slowdown in global
economies and sluggish domestic industrial growth. The slowdown in infrastructure as well as key user
industries has strained the industry players with slowdown in order inflow, delay in taking deliveries/execution
of projects, delayed bill payments etc. The near-term outlook for capital goods remains bleak unless and until
some much needed reforms are made in the sector.
Market Dynamics
• Godrej Consumer Products Ltd (GCPL) has re-entry into the air care category with a new brand, 'aer'. The
company had exited the segment in 2010. It was selling air freshener brand, Ambi Pur, through a joint
venture with US-based Sara Lee. The 15-year-old partnership ended in 2010.
• The Department of Heavy Industry has recommended a scheme of worth Rs 2,360 crore for the upliftment of
capital goods industry which will in turn reduce the import dependency.
• Under the proposed scheme, modern industrial parks and technical support will be offered to the capital
goods sector.
• The disbursement of Rs 2,360 crore will be the part of the department's commitment to develop the
industrial base of the country.
• Shoemaker Bata India, is considering to open more than 70 new Bata stores every year and also to renovate
the existing stores, as part of its major expansion strategy. Currently, the country's largest footwear retailer
Bata India enjoys a large share in the organised sector of footwear markets with over 1,250 Bata Shoe stores
located in more than 500 cities across India.
Government Initiatives
• The unveiling of Goods and Services Tax (GST) would make India more competitive both in the local and
international markets, said Union Finance Minister Pranab Mukherjee. He allso said that its will be helpful in
lowering the cascading effect of taxes.
• Mukherjee also stated that GST would offer a stable tax revenue source. The Finance Minister stated that for
the consumer, the biggest advantage of the GST would lower the overall tax burden on goods which presently
varies in the range of almost 25-30%.
• With the aim to enhance international trade, Centre is planning the extend the benefits that e-commerce
platforms in Delhi and Mumbai receive for delivering products outside the country to other areas as well,
according to Lalit B Singhal, Joint Director General of Foreign Trade.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – info@firstcallindia.com
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